Wednesday, Oct 07, 2020
Posted Date:
MARC
has assigned a preliminary rating of A+IS to Sunsuria
Berhad’s proposed RM500.0 million Sukuk Wakalah Programme. The rating outlook
is stable.
Sunsuria
is a mid-size property developer whose main development is the 375-acre
Sunsuria City township in Salak Tinggi, Selangor. Sunsuria remains focused on
property development projects within the Klang Valley over the near term.
The
assigned rating is premised on Sunsuria’s moderate business and financial risk,
underpinned by low leverage and a healthy liquidity position. The rating is
constrained by the impact from challenging market conditions on domestic
property demand which will likely be worsened by the current economic
conditions. The stable outlook assumes that Sunsuria will maintain its balanced
approach to property development and manage its financial profile within
expectations, in particular its debt metrics with a projected leverage of below
0.5x post initial issuance.
Sunsuria’s
profitability is mainly derived from its Sunsuria City development, which was
launched in 2015 and still has an estimated gross development value (GDV) of
about RM6.3 billion. It is earmarked to be completed by end-2032. Developed
with Xiamen University Malaysia as the centrepiece of the township with good
connectivity provided by the Express Rail Link and surrounding highways,
Sunsuria City’s phases have generally received above average response; however,
it recorded low take-up rates for recent launches, including for units in the
Monet Garden development which is targeted at foreigners, following a change in
regulations on foreign property ownership. Its Forum II development in Setia
Alam, Selangor, comprising high-rise residential and commercial development,
has also recorded slower take-up rate save for its SOHO units, reflecting the
prevailing weak property market sentiment.
MARC
views that the subdued response would lead to an inventory build-up within the
next one to three years upon completion of the group’s ongoing developments,
which would weigh on its working capital. As at end-June 2020, its inventory
level stood at a low RM32.2 million. Given its strong property margins, owing
to low property development costs, the group has the wherewithal to reduce its
selling prices to support sales, which would help prevent a substantial
inventory build-up.
As
at end-June 2020, the group has a GDV of RM1.9 billion for ongoing
developments, 46% of which is within Sunsuria City. Over the near term, new
developments in Bangsar (high-rise residential units) and Lorong Tuanku Abdul
Rahman (wholesale and retail units), in which Sunsuria will acquire a 51%
effective equity interest in each, will be its main focus. Their matured
locations and proximity to the city centre will mitigate market risks. The
proposed acquisitions totalling about RM100 million will be funded by part
proceeds from the initial issuance under the proposed sukuk programme.
Operating
profit margin for the past five years remained healthy at an average of about
34%, attributable to its ability to manage developments internally, including
construction works and material procurement. Operating profit before interest
and tax (OPBIT) interest coverage has remained strong at 5.0x. Going forward,
the group’s operating profit is expected to be supported by unbilled sales of
RM462.0 million as at end-June 2020 (9MFY2020). Group borrowings stood at a low
RM255.2 million, providing gross debt-to-equity ratio of 0.25x. Its cash flow
from operations, which stood at RM114.5 million as at end-June 2020, could
moderate over the medium term on the back of staggered project launches and a
lower average take-up rate. Its healthy cash balance of RM254.9 million,
coupled with unutilised credit facilities of RM131.7 million would support its
construction requirement needs over the next 12 months.
Contacts:
Gan
Peishi, +603-2717 2948/ peishi@marc.com.my;
Taufiq
Kamal, +603-2717 2951/ taufiq@marc.com.my